An Important Inconsistency at the Heart of the Standard Macroeconomic Model
AbstractThe neoclassical macroeconomic dichotomy between real and nominal variables is shown to be generally false, even within the standard structure of the model. The model implicitly assumes that disbursements via interest payments on bonds somehow ensure that all profits are disbursed. But the two are generally different. Forcing them to match renders the model mathematically inconsistent. Alternately, distinguishing the two rectifies the inconsistency but destroys the dichotomy between real and nominal variables and dramatically alter the model's outcomes. One striking consequence is that a rise in the money supply can lead to a fall in prices.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.
Volume (Year): 24 (2002)
Issue (Month): 3 (April)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348
Flow of funds; Macroeconomic models; Monetarism; Neoclassical economics;
Other versions of this item:
- Wynne Godley & B. Anwar Shaikh, 1998. "An Important Inconsistency at the Heart of the Standard Macroeconomic Model," Macroeconomics, EconWPA 9805021, EconWPA.
- Wynne Godley & Anwar M. Shaikh, 1998. "An Important Inconsistency at the Heart of the Standard Macroeconomic Model," Economics Working Paper Archive wp_236, Levy Economics Institute.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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